Which Casino Stock Could Fetch the Most Attractive Returns?

Stock Market

The Covid-19 pandemic crushed travel and casino companies. However, pent-up demand following the reopening of the economy boosted travel and helped drive business to major casinos. Despite growing fears of an impending recession, several Wall Street analysts are optimistic about the casino space. This is largely due to the continued momentum observed in Las Vegas.

As per the latest data released by The Nevada Gaming Control board, gaming revenue in the state increased 18% year over year (YOY) to $1.27 billion in January. The largest win came from the Las Vegas gaming strip.

Moreover, with the easing of Covid-19 restrictions in China, casinos with exposure to Macau are likely to see solid recovery as the year progresses.

Bearing a favorable demand backdrop in mind, I used TipRanks’ Stock Comparison Tool to compare the following casino stocks. I then identified the one that Wall Street finds the most attractive at current levels.

Caesars Entertainment (CZR)

Source: Jason Patrick Ross/Shutterstock.com

Caesars Entertainment (NASDAQ:CZR) has recovered well from Covid-19-led weakness, as reflected in its recently reported fourth-quarter results. Revenue grew nearly 9% YOY to $2.8 billion in the fourth quarter of 2022. Robust performance of the company’s Las Vegas business helped offset the slight weakness in the regional business due to weather-related disruption in December.

The company highlighted that the occupancy rate came in at 95.5% during the quarter, bouncing back to pre-Covid levels for the first time since the pandemic. Moreover, digital revenue jumped over 100% to $237 million and helped in significantly bringing down the adjusted EBITDA loss of the division. Management assured investors that digital business will be an “EBITDA contributor” this year, with both sports betting and iGaming expected to be EBITDA positive.

Following the Q4 print, Jefferies analyst David Katz increased his price target for CZR stock to $63 from $55 and reiterated a “buy” rating. Katz said, “The deleveraging process that pivots toward equity expansion continues and is evident from the results and commentary, with land-based performance gradually accelerating and digital gaming turning profitable.”

The analyst also noted increased visibility in Caesars’ cash-flow generation, which he believes will drive the stock higher.

Most analysts on Wall Street are also bullish on Caesars Entertainment, with the stock earning a “strong buy” consensus rating based on nine buys and two holds. The average CZR price target of $71.64 suggests 51.4% upside potential from current levels.

Boyd Gaming (BYD)

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Boyd Gaming (NYSE:BYD) is one of the leading casino operators in the gaming industry. It has 28 gaming properties in 10 states. The company also has a 5% stake in FanDuel Group, a leading sports-betting operator. Continued resurgence in its Las Vegas operations helped Boyd end 2022 on a strong note.

Strength in the company’s two Nevada segments, its growing online gaming business and management fees from Sky River Casino helped to more than offset the softness in the midwest and south regions. Boyd continues to see several opportunities to drive long-term growth through reinvestments in its top-performing properties and expansion of its online gaming business.

Following the results, Stifel analyst Steven Wieczynski raised his price target for BYD stock to $81 from $78. He also reaffirmed a “buy” rating.

“BYD continues to churn out healthy operating metrics and strong free cash flow (FCF) which is being directed back to shareholders at a rapid pace. With a healthy, low-levered balance sheet, we believe BYD is the perfect name to own in any environment but more so now given the near-term remains an unknown,” said Wieczynski.

Wall Street is cautiously optimistic about Boyd Gaming, with a “moderate buy” consensus rating based on 10 buys, two holds and one sell. At $74.50, the average BYD stock price target implies about 24% upside potential.

MGM Resorts (MGM)

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Shares of MGM Resorts (NYSE:MGM) have enjoyed a strong run so far this year. This is due to solid results from the company’s Las Vegas business and expectations of a strong recovery in Macau. Last month, MGM delivered better-than-expected revenue of $3.6 billion for the fourth quarter of 2022, up 18% YOY. Additionally, investors cheered the company’s new $2 billion share repurchase program.

Despite robust sales, MGM slipped to an adjusted loss per share of $1.53 compared to adjusted earnings per share (EPS) of 12 cents in the prior-year quarter. MGM China’s revenue declined 44% YOY due to Covid restrictions in China. Nonetheless, the company expects to deliver strong results this year, driven by MGM China’s recovery.

Recently, Barclays analyst Brandt Montour initiated coverage of MGM stock with a “buy” rating and a price target of $59. Montour cited several strengths that contribute to his bullish stance, including an “unmatched combination of market breadth and premium brand positioning across both land and digital,” attractive valuation and a leading position in iGaming due to the company’s BetMGM joint venture.

“MGM has attractive premium positioning in both Las Vegas and U.S. regionals, with any near to medium ‘cooling off’ risk more than offset by upside from Macau’s ongoing recovery, though Las Vegas shows no signs of slowing,” said Montour.

Wall Street’s “strong buy” consensus rating for MGM Resorts is based on 11 buys and three holds. The average price target of $55.68 implies 30.5% upside potential.

To conclude, despite near-term macro pressures, Wall Street remains bullish on Caesars Entertainment, Boyd Gaming and MGM Resorts. Currently, analysts see higher upside potential in CZR stock than the other two casino names. This is largely thanks to strength in its Las Vegas operations and improvement in the profitability of the company’s digital business.

On the date of publication, Sirisha Bhogaraju did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Sirisha Bhogaraju has over 15 years of experience in financial research. She has written in-depth research reports and covered companies across various sectors, with a primary focus on the consumer sector. Sirisha has a master’s degree in finance.

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